The founder and controlling shareholder (55% of share capital) of Sports Direct appeared before the UK parliament last June to plead his case. In a comical display of showmanship while sporting the black and white colours of Newcastle United on his tie, Mike Ashley defended his company’s record, downplayed the allegations levelled against Sports Direct, and evidently made several references to Santa Claus and Christmas.

At the heart of the controversy is an investigation conducted by two undercover reporters working for The Guardian. Posing as workers with temporary staffing agencies Transline Group and The Best Connection, the journalists concluded that employees at the company’s Derbyshire warehouse effectively received an hourly wage of £6.50, 3% below the statutory minimum wage. Moreover, the investigation found that employees were deducted 15 minutes of pay for clocking in as little as 1 minute late and no overtime was paid for those who clocked out late. In a paranoid practice that is unbecoming of a FTSE-100 company, employees, most of whom are temporarily contracted staff, were subjected to rigorous security searches after each shift which on average added 1 hour and 15 minutes of unpaid time to their working week.

Hardly immune to criticism, Sports Direct’s labour practices have come under heavy criticism over the past year. Reports have alleged inter alia that employees were scolded publicly by loudspeaker for not working fast enough and were banned from wearing 802 clothing brands at work. More troublingly, the Transline Group imposed a ‘strike system’ on its staff who would be fired upon receiving six ‘strikes’ in a 6-month period. Employees could receive ‘strikes’ for such dubious violations as ‘excessive/long toilet breaks’, ‘timewasting’, ‘excessive chatting’, and ‘horseplay’.

A seemingly repentant Mike Ashley, who currently services as Executive Vice-Chairman, announced that he would personally lead an internal review of the company’s labour practices. If there is a clear definition of a conflict of interest, this would surely qualify as one. Additionally, he announced that staff would receive a pay raise costing £10 million and that Sports Direct CEO Dave Forsey would forfeit his £4 million 4-year share bonus.

In a separate case, Dave Forsey pleaded not guilty back in October 2015 to charges that he failed to notify the business secretary prior to laying off workers at the Scottish warehouse of West Coast Capital (USC) Ltd., a division of Sports Direct that filed for bankruptcy in January 2015. Employers must give 30 days’ notice before dismissals or face criminal charges amounting to a fine of up to £5,000. Some 200 employees at USC however were only given 15 minutes’ notice before their dismissal. West Coast Capital (USC), which houses roughly 28 stores in the USC chain, was subsequently bought out of insolvency by Republic, another division of Sports Direct. The Insolvency Service compensated 80 employees while the remaining 120 employees were not entitled to redundancy pay since they were contracted staff. Following a complaint by 50 former USC employees presented before Glasgow’s employment tribunal, Sports Direct agreed to paying a ‘protective award’ equal to 90 days’ pay.

Incredulously, Sports Direct Chairman Keith Hellawell admitted that he was not made aware of the insolvency administration until the day before it happened. He also asserted that he did not ‘read the administrator’s report’ which showed that Dave Forsey and Mike Ashley had been in talks with Duff & Phelps, a financial advisory, about the potential administration of USC as far back as November 2014. Such outrageously negligent behaviour is a clear indicator of a complete lack of oversight at Sports Direct.

Heading into the Sports Direct AGM on 7 September 2016, we urged shareholders to vote against the re-election of Mike Ashley, Keith Hellawell, and Dave Forsey for shirking their responsibilities and failing to address chronic problems in the company’s employment practices. Shareholders should also note that the Board boasts an abysmal independence rate (28.6%), an excessive number of executives (42.9%), and a Lead Independent Director who is no longer considered independent (association of more than 9 years).

We additionally recommended that shareholders vote in favour of a shareholder proposal (resolution 19) to launch an independent investigation of the company’s human capital management strategy. These shareholders are associated with the UK’s largest labour union, Unite, which has launched a public campaign to raise public awareness of what it called ‘Dickensian’ labour conditions at Sports Direct.

Sports Direct has drawn the ire of its employees and the media alike for being a local champion of ‘zero-hour’ employment contracts. By some estimates, 80% of its employees have been hired under such contracts. Given the precarious nature of such arrangements, employees generally hesitate to voice their concerns for fear of having their contracts terminated. One woman was allegedly so afraid to take maternity leave in 2014 that she gave birth in the toilet. This is all the more regrettable as the company operates warehouses in some of the poorest regions in the UK.

Dreadful as these Victorian working conditions may seem, Sports Direct has made a mockery of the basic principles of sound corporate governance. A negligent Chairman, a reckless CEO supervised by a non-independent Board and a Scrooge-like overbearing controlling shareholder are not conducive to long-term value creation with shares in Sports Direct dropping by nearly 50% since the beginning of the year.

Bah, humbug!

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